Fintech

Fintech’s boom and bust spells trouble for startups

Fintech valuations soared before crashing back down. Now the private markets face the same reckoning.

A piggy bank on fire.

There’s going to be a lot of carnage and failed startups along the way, but for a fintech industry that was already pretty frothy, it might be healthy to skim some of the fat.

Image: D-Keine via Getty Images

The higher you climb, the harder you fall — and that spells trouble across the board for fintech startups right now.

“Fintech probably grew the fastest in the last two years in terms of valuation,” Better Tomorrow Ventures’ Sheel Mohnot said. “As we reset to how it was a few years ago, fintech has the farthest to fall.”

Already fintech multiples plummeted faster, and harder, than the rest of the tech sector. A chart published by a16z shows that the peak of forward revenue multiples for fintech companies was in October 2021 when it hit near 25x. Now, it’s nosedived to below 5x.

  • This is a worse slide than sectors like the cloud, according to data from F-Prime Capital. Up until 2019, fintech had been in relative lockstep with the emerging cloud index, but it ballooned in 2020 and 2021 to be way above the performance of cloud companies. But since the beginning of the year, F-Prime’s fintech index has been crashing. It fell below the cloud index at the end of March.
  • As public fintech companies are seeing their market caps shrink, it’s going to be harder for private companies to justify their own rich valuations. Publicly traded Marqeta has a market cap now around $6 billion and processed over $100 billion in transactions last year. There are similar startups doing a sliver of Marqeta’s volume but with valuations at or near $1 billion, Sacra’s Jan-Erik Asplund pointed out — an outsized mismatch.

The trickle-down from the public market’s reset hit extra hard this week. More fintech startups began to make cuts. Some might find themselves raising a down round. Of the 19 layoffs listed on Layoffs.FYI this week, nine were at financial companies.

  • Klarna told employees it would lay off 10% of its workforce via a video message this week. “When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today,” CEO Sebastian Siemiatkowski said in the video. It was rumored that the company was going to try to raise its valuation from last summer’s $46 billion to $60 billion in February, but it’s now facing a potential valuation cut down to $30 billion.
  • Fast was the first to collapse, but now its rival Bolt has had to lay off hundreds. Its layoffs are a particularly nasty kind after many employees took out loans to exercise their stock options.
  • MainStreet, which helps startups discover tax credits, already laid off 30% of its staff weeks ago. Now TechCrunch reports that it’s potentially facing a 60% discount in its valuation as part of a recap.

“The scary thing in the short term is we haven’t had a valuation reckoning yet,” one growth-stage fintech investor told me. While we’re starting to see some signs like the news of the week, there are many many more startups that haven't gone out to fundraise and face being re-priced.

  • Global fintech funding hit $132 billion in 2021, more than double the $49 billion raised in 2020. That means there are a lot of companies sitting on war chests of cash that have at least a year or 18 months of runway before they need to raise again.
  • The lingering question is how long any of this will last. Some investors like Mohnot have already marked down some of their portfolios, and more firms will follow suit. The question the growth-stage investor said they face is where exactly things need to be priced to. As they put it: The market was probably never as good as the overvalued 21x multiple but it’s probably not as bad as the 3x-4x seen today. That leaves extra uncertainty for founders not sure where to reorient their revenue targets.

The one silver lining: Founders will be forced to build better businesses when the tailwinds are gone and people don't just write a $100 million check because you say you’re a fintech company. There’s going to be a lot of carnage and failed startups along the way, but for a fintech industry that was already pretty frothy, it might be healthy to skim some of the fat. “In the overheat of 2021, there was just money going after everything and founders didn’t have to learn what product market fit felt like, and now they will,” Mohnot said. “Being a founder is about to get a lot harder, and when it happens a lot of tourist founders leave the ecosystem.”

This story also appeared in Protocol Pipeline. Sign up here to subscribe to Biz Carson’s weekly newsletter on startups and venture capital.

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep Reading Show less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep Reading Show less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep Reading Show less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep Reading Show less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins